RETAIL VIEW: H.E.B. to launch discount format

May 02, 2010

On May 5, H.E. Butt Grocery Co., the well-known San Antonio, TX-based regional retailer, is slated to open its first Joe V's Smart Shop, billed as a discount supermarket.

The first store will open in Houston, and press reports indicate that it has a warehouse look. H.E.B. executives did not return phone calls or e-mails from The Produce News by press time, but they have been quoted in the Texas consumer press about the new format.

The stores will be smaller than conventional H.E.B. locations, and H.E.B. is considered one of the top retailers in its marketplace. Instead of more than 30,000 SKUs, Joe V's will reportedly carry fewer than 10,000. But the store will have traditional offerings such as produce, meat, seafood and bakery departments. An H.E.B. executive, Armando Perez, who is vice president of the firm's Houston division, told the Houston Chronicle in late April that the greatest savings to consumers will be in the general merchandise and grocery sections.

Retail consultant Ed Odron of Ed Odron Produce Marketing Consulting in Stockton, CA, called the H.E.B. plan "a smart move." He said that supermarkets have to do whatever they can to attract customers, and "let's face it, there are a lot of customers looking for value."

In fact, Mr. Odron said that the tough economic times have caused many consumers to re-evaluate their shopping habits and search harder for value. "Sure there are the 5 percent that are very, very rich and do not have to pay attention to value, but most everyone else does. There are many six-figure- income families realizing that they need to become more value-minded."

Mr. Odron said that H.E.B. has a very fine reputation as a top-quality retailer, so it makes perfect sense to keep the "H.E.B." brand separate and launch a new banner -- "Joe V's Smart Shop" -- to attract new customers. "Not every demographic is right for an H.E.B. This allows the chain to still go after those customers without risking the reputation of its name," he said.

In his many years in retail as a produce executive, Mr. Odron has gained a lot of experience with value shoppers.

He spent most of his retail produce career with Lucky Stores in its Northern California division, helping the chain build its reputation as the "low price leader" before discount supermarkets were in vogue. "These discount formats are great for growers," said Mr. Odron. "It gives the grower the opportunity to sell product that is perfect in every way but it might not be the perfect size. Take Navels for example. Everyone wants premium Navels that they might define as a 48 or 56 [size]. But the trees are also producing top-quality fruit that are 100s or 113s. These kinds of formats help the grower sell that fruit. He can put it in an eight- or five-pound bag and put a value price on it."

Mr. Odron said that the same is true for virtually every product sold in the produce department - small apples, oranges, lettuce and celery or large containers of salad dressing or fresh-cut salads. "You can take the same [refrigerated] salad dressing like a Marie's, put it in a larger jar and give the consumer a better price [per ounce]," he added.

In most instances, retailers with multiple store formats for different demographics tend to work with their same produce suppliers, he said, giving them the opportunity for additional sales. It is a great situation for everyone, he added.

H.E.B. has not revealed its plans for expanding the discount format. In the Houston Chronicle article, Mr. Perez would say only that if it was successful, the concept would be expanded. He also denied that other discount retailers, such as Aldi or Walmart, influenced the company's foray into discounting, but Mr. Odron suspects otherwise.

"Aldi is doing great out there and has moved into that marketing area," he said. "I'm sure H.E.B., Kroger, Safeway and all the conventional supermarkets are looking at different formats or different ways to appeal to the needs of different customers. It only makes sense."

Aldi Stores, which is a discount format centered in the Midwest offering a limited number of SKUs, currently has more than 1,000 stores in 31 states. The Germany-based retailer has opened 20 new stores in Texas this year and has seven more openings planned. All the current Texas stores are in the Dallas-Fort Worth area. H.E.B. is not a big player in the Dallas area, though it does have a handful of stores in the suburbs south of that metropolitan area. Aldi has not announced plans to expand into Houston, a stronghold for H.E.B., but the company has said that it is in an expansion mode and is looking for viable locations across the country.